Question

Marty Alewine, a newly pro-moted senior at your firm, has been assigned as in charge of the audit of Doxey Electron-ics. Doxey has been a client of your firm for years. Controls are considered effective, and statistical attributes sampling to test sales transactions has been used for several years. Last year’s audit documentation reveals the following: risk of overreliance, 5 percent; expected population deviation rate, 2 percent; tolerable rate of deviation, 5 percent; sample size, 181; deviations found, three; and upper limit rate of deviation, 4.2 percent. Alew-ine’s conclusion from the documentation is that the controls were accepted as operating effectively. Deciding to use nonstatistical sampling this year to reduce audit hours, Alewine selected 100 invoices from the December invoice files, reasoning that tests closer to year- end are more effective, by selecting every 10th invoice until 100 invoices had been identified. Two invoices differed in amount from the shipping document, and one invoice could not be located. Alewine decided to accept the controls as effective again this year, reasoning the sample rate of deviation was only 2 percent, which is much less than the tolerable rate of deviation used last year.

Required: As the manager of the Doxey Electronics audit, you have been reviewing the audit documentation. Prepare a list of reviewer comments to discuss with Alewine.